Access and Participation


Several methods exist to broaden coverage and participation in retirement savings plans, including for employees of small businesses, the self-employed, and part-time and contingent workers.

One method for increasing access to retirement savings plans is providing tax incentives. In fiscal year 2014, the exclusion of employer and employee contributions to employer-sponsored plans from employees’ taxable income reduced US Treasury receipts by more than $109 billion. This tax-favored status is based on the assumption that retirement plans will work fairly and that workers will receive the benefits promised to them.

Tax subsidies for retirement savings are sound public policy, yet coverage rules continue to permit the exclusion of some (mainly lower-income) employees. Current law permits employers to exclude from retirement plans and other employee benefits people who work fewer than 1,000 hours annually. In some industries and businesses, it is common for employers to use contingent and part-time workers as a means of avoiding benefit obligations in order to save the cost of providing them. This makes it more difficult for unemployed or underemployed workers to secure full-time employment.

To increase participation in retirement plans, the Internal Revenue Service and Congress have approved plans that automatically enroll employees as participants in 401(k)s while allowing them to opt out if they explicitly so choose. There is now ample evidence that this policy greatly increases participation rates.

Coverage remains low for some groups. Small-business and service employees, the self-employed, contingent workers, and those who work less than full time or less than year round are among the least likely to be offered a retirement savings plan. Many people begin their working lives in small establishments or work less than full time. Almost 42 percent of workers are in firms with fewer than 100 employees. Employees of larger firms are much more likely to be offered a retirement savings plan.

Small employers often cite the administrative burdens and cost of providing a retirement plan as primary reasons for not doing so. Although inexpensive options are available, they are not widely used because many employers are unfamiliar with them.

Access and Participation: Policy

Encouraging coverage

In this policy: FederalLocalState

To achieve a much needed increase in the coverage of the employer-provided retirement plans, AARP supports simplifying and strengthening retirement plan rules in ways that encourage all employers to offer some type of pension to their employees.

Large employers not offering a retirement benefit should establish and maintain a 401(k) or other defined-contribution plan and be encouraged to make matching contributions to each employee’s account.

Employers should be required to automatically enroll employees in their retirement plan at an adequate minimum contribution rate and appropriate initial investment choice. Retirement plan sponsors should also offer automatic escalation of employee contributions to encourage employees to save appropriate amounts and to re-enroll nonparticipating employees at appropriate intervals.

Educating workers

In this policy: FederalLocalState

Employers should give more attention to educating workers about the importance of saving early, contributing regularly, and investing prudently in any retirement accounts available to them. Such education should be easy to understand and culturally and linguistically appropriate.

Form of benefits

In this policy: FederalLocalState

Sponsors of employer-provided plans should be encouraged to give participants the option to take their benefits in the form of an annuity or similar lifetime income vehicle.

Part-time workers

In this policy: Federalpart time work

Retirement plan coverage of part-time employees, employees of small firms, the self-employed, contingent workers, and lower-paid workers needs to be increased. New retirement plan vehicles or incentives, including tax incentives or small subsidies, should be created for this purpose.

Small business

In this policy: Federal

The Department of Labor, the Small Business Administration, the Administration on Aging, and other agencies should develop programs to publicize retirement plan options for small-business employers and employees.

AARP supports permitting unrelated small employers to offer retirement savings vehicles to their employees through trained fiduciary administrators who offer appropriate low-cost diversified retirement investments with adequate consumer protections including understandable information, participant assistance, and reasonable claims and appeals processes.